Medicare Receipts, Medicare Outlays and the Medicare Deficit

Posted by PITHOCRATES - March 5th, 2013

History 101

The Seller is the Medical Provider and the Customer is the Insurer—not the Patient

Health care prices are out of control because there are no market forces in health care.  Buyers and sellers never meet.  As the consumer of health care services doesn’t pay for them.  And the provider of services neither bills nor collects from the recipient of those services.  Instead billings and payments go through a third party.  The insurer.  Or government.

The buyer is the insurer.  Not the patient.  Who is the recipient of what the buyer pays for.  Because the recipient is not paying the recipient does not care about prices.  Or the number of tests and procedures a doctor orders.  Because if you’re not paying what do you care how much anything costs or how many costly tests or procedures you have?  You don’t.

The seller is the medical provider.  The doctor, hospital, laboratory, nursing home, etc.  Their customer is the insurer.  Who pays their bills.  Not the recipient of their services.  The patient.  Because the patient is not paying medical providers can charge high prices without hurting their patient.  And they can order excessive tests and procedures without hurting their patient.  Financially, at least.  Which they often do because medical providers don’t get paid for all the services they provide.  Some people without insurance can’t pay their bills.  And insurers often refuse to pay or discount some of the bills they receive.  Also, the government is always reducing Medicare reimbursements.  Forcing medical providers to be more creative in getting paid for services rendered.

As Medicare Outlays and Receipts grew Further Apart the Medicare Deficit Soared

Medicare began in 1965.  Medical care for people 65 and older.  And like the private health care market there are no market forces in Medicare.  Worse, government bureaucrats run it.  Which throws open the doors to waste and inefficiencies.  And cost overruns.  Because private insurers have bottom lines to meet.  Government bureaucrats don’t.  All they have to do when they do a poor job managing something is to raise taxes.  Which they had to as Medicare ran a deficit in all but one year of its existence (see Table 2.4—COMPOSITION OF SOCIAL INSURANCE AND RETIREMENT RECEIPTS AND OF EXCISE TAXES: 1940–2017 and Table 3.1—OUTLAYS BY SUPERFUNCTION AND FUNCTION: 1940–2017 at FISCAL YEAR 2013 HISTORICAL TABLES BUDGET OF THE U.S. GOVERNMENT).

Medicare Receipts Outlays Deficit 1970-2011

Medicare ran a $912 million surplus in 1974.  We made it zero to keep the Y-axis positive.  The difference in graphs is negligible and unnoticeable at the scale shown.  The right axis shows the Medicare payroll tax rate.  Medicare outlays and receipts are pulled from the above referenced source.  The Medicare deficit is calculated by subtracting Medicare Receipts from Medicare Outlays.  However, for simplicity we show that negative number as a positive value on the graph (the graph shows the magnitude only of the deficit).  The graphs are pretty flat during the Seventies so we drop them off in the following chart.

Medicare Receipts Outlays Deficit 1980-2011

The Medicare tax rate has been holding steady at 2.8% since 1986.  This tax rate has provided a growing rate of Medicare receipts.  But Medicare outlays have grown at a greater rate.  Outlays remained flat for a few years in the Nineties thanks to the Medicare Sustainable Growth Rate (SGR) included in the Balanced Budget Act of 1997.  Which basically discounted doctors’ Medicare billings.  Doctors provide the same services.  Only the government paid them less.  After some fierce opposition this provision (the doc fix) went away.  For it was either that or doctors would leave the Medicare program en masse instead of operating at a loss.  Leaving the government with a lot of seniors without any doctors.  So Medicare outlays resumed their upward growth.  With receipts growing at a lesser rate.  As outlays and receipts grew further apart the Medicare deficit soared.

Obamacare Spending will be out of Control because Medicare Spending is out of Control

The Medicare tax is a flat tax.  Which means the more you earn the more you pay.  Unlike Social Security that has a maximum taxable earnings amount.  The Social Security tax rate is 12.4% of the first $113,700 you earn.  Bringing the FICA tax (Social Security and Medicare) total to 15.3%.  When they passed the Social Security into law they promised that the Social Security tax would never exceed 3% of the first $3,000 you earn.  Just to give you an idea of how horrible the government’s projections were.  They have raised taxes far beyond what they promised and it still isn’t enough.  Medicare is running greater and greater deficits.  So Medicare is in trouble.  And with Obamacare pulling some $700 billion from Medicare things aren’t going to get any better any time soon.

Medicare is national health care.  And the government is running it very poorly.  The Medicare outlays in 2011 were $485.6 billion (or about 13.5% of all 2011 federal outlays).  And that was generated from treating only 12.8% of the population.  How bad will these numbers be if Obamacare evolves into a full-fledged national health care service?  If you divide the 2011 Medicare outlays by 12.8% you get $3.79 trillion.  This amount would be for 100% of the population receiving medical care as if they are 65 or older.  Currently those 65 and older consume about 35% of all health care spending.  So if we multiply $3.79 trillion by 65% (1-35%) we get $2.47 trillion (or about 68.4% of all 2011 federal outlays).  Which adjusts this amount as if everyone receiving health care is under 65.  As the amount of those 65 and over receiving health care will fall under Obamacare thanks to those unofficial death panels.  And they’re going to need those death panels.  Because with the government running Obamacare it will be an abject failure.

A crude guesstimate.  But it’s probably not that far off.  For national health care is very, very expensive.  And as we’ve learned from Medicare, it’s also very, very inefficient.  Because there are no market forces in health care.  Which is why Medicare spending is out of control.  And why Obamacare spending will be out of control.  Requiring massive new taxation.  Rationing.  And cost cutting.  As in death panels.  For letting people die instead of treating them will be the only way to bring down costs.  Unless they force health care providers to work without pay.  Another way to cut costs.  Compel health care providers to work against their will.  For why should anyone profit off the suffering of others?  Which may be the next dictate handed down in Obamacare.

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Medicare Cost Savings are Cost Transfers to Private Sector Businesses

Posted by PITHOCRATES - June 12th, 2011

Private Health Insurance Costs rising Faster than Medicare Costs

Looking at graphs makes problems easy to see.  They can make you jump to the wrong conclusions, but you can see the problems more clearly.  And the good news is that Medicare doesn’t have any problems.  At least cost-wise.  It’s the free market that does.  Because it operates without the keen and wise oversight of government.  As a result they can charge whatever they want for their insurance.  Well, the government doesn’t allow this in Medicare.  Therefore, the government way is the better way.  Just look at the graphs (see It’s the Health Care Costs, Stupid by Paul Krugman posted 6/12/2011 on The New York Times).

The larger point is that we don’t have a Medicare problem, we have a health care cost problem. And Medicare actually does a better job of controlling costs than private insurers — not remotely good enough, but better…

If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.

But graphs can be misleading.  Looking at them does support everything he says.  However, the graphs don’t explain why.  And if you want to know the ‘why’ talk to a doctor.  Ask about his or her Medicare billings.  You won’t hear a happy story.  The government keeps cutting the amount they will pay.  Because they can.  And every year further ‘automatic’ cuts have to be postponed by Congressional action.  Which usually happens.  Because these future cuts are so steep that, if enacted, will make a lot of doctors stop seeing Medicare patients.

But if the government isn’t paying doctors fairly, how can they stay in business?  Isn’t the fact that they are staying in business prove that the government-determined prices are fair?  No.  Costs are costs.  Those unpaid by the government still have to be paid.  And guess by who?  That’s right.  Private insurance.  That’s one reason why private insurance costs are so high.  They’re picking up the unpaid Medicare costs.  And unpaid Medicaid costs.  And a large part of costs incurred by people using the emergency room in lieu of buying health insurance.  Through inflated billings to private insurance companies.  Because costs are costs.  And someone has to pay them.

Of course, it’s the people who pay for private insurance who end up paying.  And because health insurance is an employee benefit, the employers ultimately pay.  Businesses.  And the more unpaid Medicare costs are passed on to businesses, the higher their health insurance premiums get.  Forcing them to make cuts elsewhere.  Make the employee share in part of the costs.  Or they simply quit providing health insurance.  So these remarkable cost savings the government achieves are nothing more than an additional Medicare tax.  That private sector businesses pay.

And when businesses have to pay more for unpaid Medicare benefits, they have less to pay their employees.  Or simply can’t afford to hire more people.  Which means a net reduction in consumer spending.  Either through lower wages.  Or less job creation.  So the more the government ‘saves’ on Medicare, the less economic activity there will be.  And possibly the less Medicare there will be (if further cuts make doctors drop out of the system).

So, yes, the graphs are accurate.  But they don’t tell the whole story.  They show a smaller rise in Medicare costs than private insurance costs.  But it’s just smoke and mirrors.  Misdirection.  A magician’s trick to make us look one way.  So we don’t see what’s really happening elsewhere.

Health Care Costs are Rising in the Military, Too

About 60% of government spending covers Social Security, Medicare/Medicaid and defense.  Each at approximately 20%.  We continue to spend more and more on Social Security and Medicare/Medicaid.  And yet these programs are projected to go bankrupt.  Defense spending has gone up, too.  But it is the only one of the three programs that ever sees any real cuts.

The U.S. population is a little over 300,000,000.  And about 40% of the federal budget covers the elderly (approximately) of that 300 billion.  About 13% of the U.S. population.  Or about 39 million people.  It’s this 39 million that is bankrupting America with their Social Security and Medicare benefits.  Those who passed Obamacare want universal single-payer health care for all 300,000,000 people.  You don’t need a higher degree in math to see that adding some 260 million more to the 39 million is going to make a bad financial situation worse.

Meanwhile the U.S. military has approximately a million and a half people on active duty and another million and a half in the reserves.  In addition to this 3 million there are about another 2 million in retirement (850,000 who are collecting a pension).  So that’s about 5 million (approximately) in our military health care and retirement programs.  These numbers are very approximate.  But the order of magnitude is accurate.  And telling.  Because even though 5 million people are a whole lot fewer than 39 million people, the health care and retirement costs in the military are unsustainable (see Panetta: Military healthcare costs are on my radar by John T. Bennett posted 6/12/2011 on The Hill).

The Obama administration is proposing increasing TRICARE fees for retirees of working age, which have remained the same for a decade. Specifically, the proposal would raise premiums for family plans by $5 per month, and by $2.50 for individuals…

“Even with the estimated savings from the healthcare efficiencies proposed in the … 2012 budget, the cost of the Military Health System continues to increase as a percentage of the DOD budget and will exceed 10 percent of the budget in just a few years,” Panetta told the committee…

“Part of this is understanding where the money is,” Mullen said. “Two of the big places the money is is [sic] in healthcare, and it’s in pay and benefits.”

First you increase the beneficiaries’ cost.  And when that no longer works you start the rationing.  The ultimate result of any single-payer system.  Just like in the UK.  Where one of the goals of their ongoing NHS reform debates is cutting wait times.  Because with the high costs of their single-payer system, people have to wait a long time for some medical tests or procedures.  Because their costs prevent them having a lot of these tests or procedures available to the UK citizenry.

Destroying the Private Health Insurance Market

Social Security and Medicare Light (military health care and retirement) isn’t working with only some 5 million people in the system.  Regular Social Security and Medicare isn’t working with only some 39 million people in the system.  And expanding Medicare-like health care to another 260 million people probably isn’t going to help.  Unless your goal is to destroy the private health insurance market.  Which will happen.  Because private insurance (i.e., businesses) simply cannot afford to pick up the unpaid medical costs of another 260 million people.

And once you’ve destroyed the private health insurance market, all those unpaid Medicare costs (and the new unpaid Obamacare costs) will have to be transferred somewhere else.  To the taxpayer.  Both businesses.  And consumers.  Which will further reduce consumer spending.  Which will reduce economic activity.  Despite all the promises of a single-payer system.  Because costs are costs.  And someone has to pay them.

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